Sri Lanka Keeps Rates Unchanged to Spur Growth, Support Rupee

Sri Lanka left its key interest rates unchanged to bolster growth and support the rupee as emerging-market currencies reel before an expected increase in U.S. interest rates and amid concerns with a slowdown in China.

The Central Bank of Sri Lanka kept its standing lending facility rate at 7.5 percent and standing deposit facility rate at 6 percent, it said in a statement Friday. The decision had been predicted by five of six economists in a Bloomberg survey, while one had called for a 50-basis-point increase.

“Headline inflation is expected to remain comfortably within 2 percent to 3 percent by year end, supported by improved domestic supply conditions and subdued global commodity prices,” the central bank said.

The Sri Lankan rupee fell to a record this month after the central bank on Sept. 4 pulled back from daily intervention in the currency markets. The International Monetary Fund last week welcomed Sri Lanka’s commitment to exchange rate flexibility and said the island’s monetary stance was appropriate even as a tightening bias may be prudent amid rising core inflation and a resurgence of private credit.

The rupee has declined 6.8 percent this year.

The consumer price index fell 0.2 percent in August. Average annual core inflation was unchanged at 2.8 percent last month, the central bank said.

“The central bank will continue to be vigilant on the overall trends in the growth of credit as well as monetary aggregates and take pre-emptive measures in the case of emerging risks threatening the maintenance of price stability on a sustainable basis,” the statement said.

U.S. Federal Reserve Chair Janet Yellen Thursday said she is ready to raise interest rates this year and intends to let the labor market run hot for a time to heal the lingering scars of the worst recession since the Great Depression.

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